LIQUOR STORES NA LTD 4.70 PCT DEBS T.LIQ.DB.B

RE:RE:RE:RE:BNN Interview

[Goldbuggy1]

ffhwatcher3 wrote:

Goldbuggy1 wrote:

Goldbuggy1 wrote:

Al42 wrote:
For those that missed it.

https://www.bnn.ca/Video/player.aspx?vid=838688

Thanks for the Tip. It was interesting and also explains the huge volume today.

Interesting to hear how the Board "Agonized" over the Dividend Cut. I wonder why? Including all the members of the Board of Directors, and all the Executive Management they own a combined total of about 722,000 Shares which they probably got most from bonuses. So these Insiders only own about 2.6% of this company. So how many sleepless nights agonizing over this Dividend Cut with only that many shares? But then they claim they can show a 20% Return on the Capital so the money is better spent there then on Dividends. New store opening are also in the high teens. Lets See! In New Jersey they spent USD $15 M to get USD $25 M in sales. In Canada Gross Margins, or the money they make above there Inventory Cost runs under 26%. So on USD $25 M x .26 = USD $6.5 M. The cost to sell this product as in wages, rent, utilities, etc. is about 80% of Gross Margin, so 20% is Gross Profit. So from USD $6.5 M x .20 = USD $1.3 M. Since they Grossed USD $1.3 M and the Capital spent was USD $15 M, then there Return in Capital is $1.3 M / 15 M = 8.7%. But then out of this USD $1.3 M they still have to pay interest on the USD $15 M Loan to even buy this place, plus income taxes. I know that my Math is not that good but good enough to see that there is no way they can make a 20% Return on Capital from this Deal unless they fix the books. If these Private Labels are doing so well then why did there Gross Margin for last quarter drop to 25.5% from 25.8% last year? The only sure thing about this Interview was them showing a 5 Year Chart on this Stock Price and how it dropped 51% in that time period.

FINALLY!!! We can agree on something....
"I know that my Math is not that good..." Goldbuggy1 (we both agree that your math isn't very good...actually your math is good...double counting isn't bad math, because the reason you double counted is that you don't understand what the heck you are doing)

You divided the rate of return by the $15m investment (as if they paid cash for the purchase) and then went on to subtract the cost of interest (as if they financed the entire transaction).  So which is it?  It can't be both... that is called double counting. I don't want to stick up for LIQ too much, they are in a very marginal business barely making a go of it right now.  
They also said they generate 20% on the investment they make when they remodel an existing store and in the teens when they buy a new store. I do agree with your conclusion...they are making almost no net margin currently and cutting their dividend should not have been a difficult financial decision...it was an emotional one because shareholders would be mad and they knew the stock price would take a beating.

Finally! I met someone who's math is worst than mine. This USD $1.3 M is not the "Rate of Return". It is the money they receive after all initial costs are added up in selling this product. To get a Rate of Return you need to know how much money you invested to get this USD $1.3 M. In this case the company spent USD $15 M. So now we know that the company will make USD $1.3 M by investing USD $15 M. To get a Rate of Return (%) you now take the money your expect to earn and divide that by the money you spent. In this case USD $1.3M / USD $15 M = 8.7%. Not 20% as they claim! I did not double count anything so I have no idea where you got this from. Under the best case scenario the company would pay cash for this deal, as obviously on borrowed money it cost you more, but I used the best case scenario to demonstrate that there is No Way they will get 20% Return, or even the High Teens, on this investment. I only mentioned that this USD $1.3 M Profit is not the true profit as from this they would still have to pay Interest on this USD $15 M that they borrowed, which by the increase in debt in March from last December indicates this, plus they still have to pay taxes on this profit.